Indecisive trading pegged to jobs data

Market still uncertain about soundness of U.S. economy

By

KateGibson

CHICAGO (CBS.MW) -- U.S. Treasurys were mixed Tuesday, with prices closing near neutral with the market reluctant to place definitive bets ahead of Friday's important employment report.

"The Treasury market is moving toward what looks more like fair value, the 10-year if it settled around 4.30 (percent), and the 2-year around 2.70 (percent)," said Vince Boberski, director of fixed-income research and strategies at RBC Dain Rauscher in Chicago.

The benchmark 10-year note closed 1/32 at 100 20/32. Its yield
TNX, +3.23%
used in setting corporate and mortgage lending rates, held steady at 4.18 percent.

Meanwhile, the 2-year note gained 1/32 to reach 99 24/32, with its yield at 2.64 percent from 2.66 percent at Monday's close.

"It's difficult in this environment for investors and traders to make up their minds between the slow growth, low inflation that sub-4 percent 10-year yields implied, or the heavy bounce back from the soft spot in the summer," Boberski said. "The truth is probably somewhere in between."

Earlier Tuesday, the Institute for Supply Management reported the services sector of the U.S. economy grew at a slower pace in September, with its nonmanufacturing index slipping to 56.7 percent from 58.2 percent in August. Economists had expected the index to rise to 58.8 percent in September.

The ISM's employment index rose to 54.6 percent from 52.5 percent, the second consecutive monthly increase. Read the full story.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, called this "potentially significant because the employment index clearly softened over the summer and a rebound now might signal better payrolls ahead."

September cuts

While awaiting the September payrolls report, traders also looked to layoff announcements by U.S. companies.

Such announcements surged 45 percent in September to nearly 108,000, the highest number of planned job cuts since January, Challenger Grey & Christmas said.

"The return to six-figure job-cut levels paints a grim picture for ongoing economic growth, as such activity is generally considered a measure of how companies view future business conditions," said John Challenger, chairman of the outplacement firm, in a written statement. See Economic Report. Against this backdrop, economists expect that nonfarm payrolls grew by about 140,000 in September, about the same as in August. But economists warn that their forecasts are only a rough guess at how recent hurricanes may have affected the U.S. economy. See Economic Preview.

"We're looking for a below-trend reading of about 115,000, on the weaker side," said Boberski.

Also figuring in Tuesday's Treasurys action, crude-oil futures climbed to fresh record territory above $51 a barrel, with traders concerned about the slow progress of recovery in the Gulf of Mexico following last month's hurricanes.

Crude for November delivery closed at $51.09 a barrel on the New York Mercantile Exchange, eclipsing the previous record of $50.12 set on Friday. See Futures Movers.

And Federal Reserve Chairman Alan Greenspan made no mention of monetary policy during a speech to bankers gathered in New York.

U.S. banks have learned painful lessons from crises and competition and have adapted to succeed in today's economy, Greenspan told his audience.

The Fed chief's comments were delivered via a video link to the American Bankers Association convention. Read the full story. Also declining to get into the fray over U.S. monetary policy and probable interest-rate hikes was European Central Bank chief Jean-Claude Trichet, who refused to offer any suggestions to the Federal Reserve on whether it should become more open about its deliberations.

"I won't make any intrusion on their meditation," Trichet said Tuesday in answer to a question following a speech to the National Association of Business Economics in Philadelphia. Read the full the story. Rounding out the action in Treasurys, the 5-year fell 1/32 to 99 25/32, with its yield unchanged at 3.42 percent. The 30-year bond climbed 2/32 to 106 18/32, with its yield down to 4.93 percent.

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